Galleon's Rajaratnam denies insider-trading charges

By IBT Staff Reporter11/24/09 AT 9:40 AM

Raj Rajaratnam, the billionaire founder of hedge fund firm Galleon Group, denied federal insider trading charges and accused the government of violating his constitutional rights with its use of wiretaps.

Rajaratnam's response to a U.S. Securities and Exchange Commission civil complaint was filed Tuesday in Manhattan federal court and may herald a broad attack on the allegations and the methods used to round up defendants in the largest hedge fund insider trading case in U.S. history.

Some 20 defendants face criminal or civil charges; some, including Rajaratnam, face both. Key evidence has come from the first court-approved wiretaps ever used in a Wall Street insider trading probe.

He denied having knowledge sufficient to form a belief about alleged insider trading in other stocks, including International Business Machines Corp and Sun Microsystems Inc.

Rajaratnam also said he did not offer benefits in exchange for insider information, and that research by Galleon analysts was more detailed and precise than any inside information he was alleged to obtain illegally.

The SEC did not immediately return requests for comment. A spokesman for Rajaratnam's lawyer, John Dowd, declined to elaborate on the filing.

Rajaratnam alleged that the government's unprecedented use of electronic surveillance violating his constitutional and statutory rights.

He said that when the government sought court approval to use wiretaps, it violated the law by failing to reveal that it had interviewed him under oath and taken thousands of pages of Galleon documents.

Rajaratnam said the government also misrepresented that cooperating witness Roomy Khan had not yet been charged with any crimes when she had been convicted of wire fraud in 2001.

Khan is one of at least five people who have pleaded guilty in the hedge fund insider trading case since prosecutors on October 16 announced criminal charges against Rajaratnam.

She also admitted destroying evidence related to an SEC probe in early 2008, which Rajaratnam's lawyers said predated most of the wiretap applications.

A lawyer for Khan did not immediately return a call seeking comment.

Prosecutors have identified $40 million of illegal profits in their criminal probe into alleged hedge fund insider trading, and the SEC has found $53 million in its civil probe.

Rajaratnam is free on $100 million bond. Galleon managed $3.7 billion when he was arrested but is now winding down.

The case is SEC v. Galleon Management LP et al, U.S. District Court, Southern District of New York, No. 09-8811.

(Reporting by Jonathan Stempel, editing by Dave Zimmerman and John Wallace)